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The key buildings in downtown Grand Rapids office real estate have experienced an uptick in their vacancy rates.

There are a number of reasons the JLL Skyline Report suggests key downtown building vacancy rates are lower than the past few years, but the 18 percent vacancy of those buildings is largely driven by the lack of new major office users in the Central Business District (CBD).

“It is a little fragile right now, but downtown is a place people want to be,” said Jeff Karger, senior vice president with JLL in Grand Rapids. “Vacancy has backtracked a bit because we’re increasing inventory without adding a significant lease to the market.”

The JLL Skyline Report looks at 1,300 buildings in 57 markets across the U.S. and Canada. This is the first year Grand Rapids, along with Louisville, Kentucky, were included in the Skyline Report, which looks at a city’s signature buildings, which help set the lease rates of the city.

Downtown vacancy rates spiked up significantly for the first time since 2011 when the key office building vacancy peaked at nearly 30 percent. Vacancy in those buildings in 2007 was below 15 percent.

The report did name two tenants making the move as significant users to the landmark buildings: law firm Honigman in 300 Ottawa and Bank of America in 250 Monroe.

Despite those new downtown tenants, Karger said new tenants in downtown Grand Rapids just aren’t making the move right now. Others are beginning to look outside of the CBD, a trend Karger said he’s now keeping his eyes on.

“It’s certainly something we’re monitoring, as we’ve represented a few who have moved out,” Karger said.

Both the Colliers West Michigan and NAI Wisinski of West Michigan Second Quarter reports confirmed Karger’s anecdotal evidence of office tenants relocating to the suburbs or downsizing their offices. Still, both the NAI Wisinski and Colliers reports found the office market to have overall net absorption for the 26th straight quarter. Colliers found the overall downtown vacancy rate to be 10.29 percent, while NAI Wisinski marked it at 4.9 percent.

Karger said the larger effect of the two is big office users shrinking their space, like Fifth Third Bank consolidating their space into the Fifth Third Building, 111 Lyon St. NW, leaving the complex’s smaller 200 Monroe building completely vacant. Fifth Third Bank also sent its private banking arm to an office on Cascade Road.

“When you have a major user like Fifth Third consolidate, that ticks the needle in a negative way,” Karger said.

Another major move will be in 2019 when the law firm Warner Norcross & Judd moves into its new office tower in Orion Real Estate Solution’s Warner Building. The 118,000-square-foot office portion of the building is leased up, but Warner Norcross is vacating more than 80,000 square feet in the Fifth Third Building.

Chemical Bank also will be a user in the office portion of the Warner Building.

“That creates a small vacuum, as well, but fairly significant in our marketplace,” Karger said. “That does not create absorption, we have to backfill that space.

“Their lease isn’t up until 2019, and there’s a lot to figure out between now and then, but there is plenty of time to backfill it.”

Also available is nearly 90,000 square feet in CWD’s redevelopment of the 50 Monroe building. The non-office portion of the building will be AC Hotel by Marriott, operated by Amway Hotel Corp.

Karger said two of the large spaces needing large users, 200 Monroe and Fifth Third Building, have a parking lot owned by the landlord, CWD Real Estate Investment, solving an issue for some looking to move out of, or potentially moving into, the CBD.

“Leasing those two buildings should not be affected by parking,” he said. “Parking is a pinch point, but I think it will work itself out.”

Aside from parking, Karger said he still believes downtown is a place offices want to be and had some good news when it came to lease rates.

“We’re at a point where we’re, at least short term, at a peak,” Karger said. “I don’t think lease rates will keep rising much further, but they’ll sustain this pricing for a while.”

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